PAC 2015-16

"The public is listening to us and everything in the country has supposedly changed. However, while we have not concluded our banking inquiry into what happened seven or eight years ago... technically, what is worse in governance terms is that we are holding an inquiry into a bank that we owned."

Deputy John Deasy: I welcome Mr. Moran and his officials. I understand he was only appointed in July 2014, but I wish to refer to some historical issues on which we need answers because this is the first opportunity Department of Finance officials have had to respond to parliamentarians directly on these issues - Siteserv, in particular - the timelines involved and the issues that have arisen.

Mr. Moran may delegate as necessary to provide responses to the questions. Although he may not have been the person involved in the meetings, we need clarity on the issues involved, notwithstanding the written responses we have received from the Department in recent days.

I will start by asking questions about the Siteserv shares. Media reports in the past couple of months have suggested there was a sudden spike in Siteserv share activity between November 2011 and February 2012.

I find it curious that it took a request from a Member of the Dáil to the Office of the Director of Corporate Enforcement to initiate a potential investigation into issues that might have arisen from the sudden spike in share activity.

When the Department read media reports on an organisation, of which it had oversight through IBRC, which was in effect sold by the State, what did it do? Did it make inquiries about the share prices and activity reported in late 2011 and early 2012?

Derek Moran: I have brought with me Ms Nolan and Mr. Reid who are more familiar with this issue. I would preface any comment by saying I am anxious to assist the committee on this issue and that we provided a comprehensive background document for the committee on Tuesday evening.

I am also conscious of the review of the transaction being carried out by the special liquidators, assisted by Mr. Justice O'Neill, which needs to take its course. Therefore, we will stay away from the transaction and its details and talk around the framework and the relationship.

On the alleged spike in share transactions, the monitoring of share transactions is a matter for the Stock Exchange which does not fall under the aegis of the Department. Where there is suspicion of anything happening along the lines the Deputy has described, the Stock Exchange is obliged to communicate with the Office of the Director of Corporate Enforcement.

Deputy John Deasy: Let me stop Mr. Moran. The public is listening to us and everything in the country has supposedly changed. However, while we have not concluded our banking inquiry into what happened seven or eight years ago, we are now finding that we are conducting another inquiry into a bank we own.

Somebody might ask the question: "What is worse governance wise?" Was what happened in the 2000s in banks we did not own and of which there was no oversight and regulation worse? The answer is that that was worse, given the devastation caused to our country and people. Technically, though, what is worse in governance terms is that we are holding an inquiry into a bank that we owned. That is how I will premise my comments.

If the Department of Finance technically does not have a remit over the investigation of alleged insider trading, I am not sure whether it is sufficient to assert that that was not the Department's job. The Department had oversight of IBRC. The State owned it.

When the media reported an alleged spike in share activity, did anyone in the Department contact the Stock Exchange, the Garda or the Office of the Director of Corporate Enforcement, ODCE? If the answer is "No", we have a problem. If someone robs my house, I go to the Garda and make a statement.

A Deputy has made a request of the Director of Corporate Enforcement. His office's answer was that it wondered whether it had a remit in this area. We have an issue with the process when it comes to the investigation of alleged insider trading. The answer to my question is that the Department did not contact anyone about an alleged spike in share activity. Is that the case?

Derek Moran: It is important to get the timelines right. My understanding is that the alleged spike happened several months before the transaction was executed or during the run-up to the transaction. The Department had no visibility of that transaction until after it had happened.

Deputy John Deasy: I know that. That is fine. I am talking about what has been reported on in recent months. Does Mr. Moran have any opinion at all about what has been reported?Derek Moran: Opinion does not matter. We are talking about a spike in a transaction-----Deputy John Deasy: Yes.Derek Moran: -----that happened before the Department had any sight or knowledge of that transaction. This was an issue to be monitored by the Stock Exchange and reported to the ODCE if the former saw a problem. It is alleged. I do not know what the evidence is.Deputy John Deasy: Does Mr. Moran know what? I am talking about the process. We have a problem. Compare this with the US Securities and Exchange Commission, SEC, which is a law enforcement commission, has an enforcement division and prosecutes civil cases before courts.

It is unclear what happens in Ireland where there is an allegation or report, but the SEC acts on media reports. If it reads something about the industry in The Wall Street Journal, it acts on it. The Director of Corporate Enforcement's response in a news article was that his office "did not receive any requests from any other regulatory authority asking us to commence an investigation" into Siteserv share trading.

This begs the question of what the office needs. Is it a papal bull from the Vatican? I do not know what initiates an investigation. If the Department of Finance has no interest, we have a serious problem.

The problem with the Stock Exchange is that it is owned by stockbroking firms. Someone might ask whether it is in the public's interest for them to have responsibility and remit for initiating an investigation. Is this a fair analysis or point to make?

It is unbelievable that, if something like this is reported in the press, the Department of Finance does not have an opinion or will not ask even basic questions of the bodies and agencies that have a remit for alleged insider trading. Is this not even remotely reasonable?

"This begs the question of what the office of Corporate Enforcement needs. Is it a papal bull from the Vatican?"

Derek Moran: The regulation of the market is a matter for the Stock Exchange and, where there are irregularities, to report to the ODCE.

These do not fall within the remit of the Department. I just want to be clear on that. The alleged spike happened before the Department had any visibility on the Siteserv transaction.

The response to the suggestion that there were irregularities was to make available the share register. To date, this is still an allegation of which I am unsure there is any evidence. Do my colleagues wish to speak?Declan Reid: We are not aware of any evidence that has been brought forward other than what we have read in the press. The share register has been made available by the liquidator of Siteserv for scrutiny.

Deputy John Deasy: Mr. Reid is the person in the Department who would deal with this matter.

Declan Reid: Now, but not at the time of the transaction.Deputy John Deasy: Has Mr. Reid or any of his predecessors contacted the Stock Exchange or the ODCE regarding this issue-----Declan Reid: No.

Deputy John Deasy: -----to find out whether they are looking into it? I am not asking whether Mr. Reid has evidence. I am asking whether anyone in the Department of Finance, which had oversight of transactions involving IBRC, picked up the telephone and called these organisations?

Declan Reid: We have not contacted them directly to see whether they have conducted an investigation, but they have come out in response to parliamentary questions of which we are aware and stated their positions.Deputy John Deasy: Does Mr. Reid not have any human curiosity about a matter over which he has responsibility on behalf of the public and into which he might make initial inquiries?

Before Ms Nolan speaks, I find it unbelievable that someone from the Department of Finance would not pick up the telephone if there were several reports about a spike in Siteserv's share activity, given what has been in the media in recent months.

The response from the ODCE was equally amazing. The office made contact with "a number of other regulatory authorities with a view to seeking to establish as to whether any issues arise that might come within remit". It did not even know what its remit was in this situation.

The Stock Exchange is responsible for monitoring any suspicious trading, but we are none the wiser as to whether it has conducted a preliminary inquiry or investigation. It passes its files to the ODCE, which then investigates any alleged breach in company law. Is it not always the case of something being someone else's job? This must change.

Given what the country has gone through in the past ten years, surely the Department of Finance would have some interest in finding out whether someone or some agency or body was examining what has been reported. This is reasonable, fair and simple. Does Ms Nolan wish to respond?

Ann Nolan: The reality is that we do not have any evidence that there was a spike, never mind evidence of wrongdoing, but I agree that it is for the Stock Exchange and the ODCE to investigate such matters.Deputy John Deasy: Does any of the witnesses have an opinion on whether the procedures in terms of alleged insider trading are appropriate?

Ann Nolan: Insider trading is in no way appropriate. A number of changes to the procedures are upcoming. We are examining the market abuse directives. We expect there to be changes in the next 12 to 18 months in that regard to bring the entire matter under the Central Bank rather than the Stock Exchange, which would be more appropriate than the current arrangements. We are working on that front.

Deputy John Deasy: I will leave it at my next comment on this aspect. The public will be amazed that the Department of Finance did not make even the most basic of inquiries of the ODCE, the Stock Exchange or the Garda into whether the issue was being examined, investigated or inquired into.

It is amazing. The witnesses might say that they were not there at the time, that this was not their job or that, statutorily, this was not an issue for them, but the public will not buy that any longer.

What Deputy Catherine Murphy asked in the Dáil was reasonable. This committee should make inquiries, as the issue relates to taxpayers' money. The Department of Finance held the opinion that there was potential for an awful lot of taxpayers' money to be lost, so a review was commenced.

It was concerned about an asset being sold for a price that was too small. The very least the Committee of Public Accounts should do is to inquire whether the Office of the Director of Corporate Enforcement has looked at the matter and whether it is inquiring into it.

We should echo what the Deputy asked for in the Dáil Chamber, if the Department is not going to do anything, and take it from there. It is unbelievable that the Department might not be prepared to make inquiries over the telephone, so the committee will have to do so.

I wish to inquiry about Siteserv. As I said earlier, this is the first time the officials from the Department of Finance have had an opportunity to respond to questions regarding Siteserv. They have given written answers to some of the questions we asked and, in many respects, the replies are comprehensive.

I will start with the date of the review conducted by the Department, which was a meeting with senior IBRC officials held on 11 June 2012. What prompted the review by the Department? What concern prompted the Department to seek a meeting on Siteserv?

Derek Moran: As I said at the outset, the timeline is important. The Department did not have visibility on the Siteserv deal. Critical to this issue is when we first had an inkling that there might be an issue.

We got a representation from a member of the public expressing concerns, and then there was a series of one or two parliamentary questions which brought up issues of concern.A routine monthly management meeting was held in April at which the question of alerting the Department was raised.

It was agreed with the chairman and CEO on 31 May that we would do so. It was in response to an e-mail from a member of the public, some press reporting and parliamentary questions. The review took place on 11 June, and Departmental officials and officials of the bank went through the various details on how the transaction was done.

The key element of concern was the first point that Siteserv led the sale and not IBRC - it was handed off to them - which gave rise to a range of other issues. It was those types of concern.

We listened to the response, and there were five issues, all of which flowed from the fact that the company was allowed to run the sales process: not opening the sale to trade buyers, entering into exclusivity with a single bidder, the payment, the quantum of the payment to shareholders, and certainly the suggestion of not accepting higher bids. That is what gave rise to it, and it was immediately afterwards.

We have looked at the records and we have searched thoroughly in the Department. There is no record of details of Siteserv being provided by the IBRC to the Department before April 2012.

Deputy John Deasy: The shareholding management unit has responsibility for the day-to-day relationship. Is that right?Mr. Derek Moran: Yes.

Deputy John Deasy: So, by June or July 2012, when it expressed a concern that the State had not recovered as much as it possibly should have, was that not a bit late in the day? What was it doing previous to that, at the time Siteserv was being sold? Has the Department asked the unit about what was disclosed?Derek Moran: Yes, I have.Ann Nolan: Under the relationship framework that was before that, the fiduciary duty of the interests of the State was held by the independent board which had been appointed by the Government after the takeover or nationalisation of the IBRC. We did not get involved. In fact, the relationship framework was designed in such a way that we would not get involved in the ordinary day-to-day activities of the IBRC.Deputy John Deasy: We now know that that design was extremely faulty, which led to a revised relationship framework. Is that fair to say?

Ann Nolan: I think-----

Deputy John Deasy: Is there an admittance or agreement that the unit was completely ill-equipped to deal with the relationship and communications from the IBRC and the Department of Finance, and that is why it resulted in a completely revised framework document?Ann Nolan: That would probably not be quite the full story. I want to be fair to all the people involved. At the time the bank was taken over it was a going concern, and the ordinary course of business was, of course, ordinary banking business.

It was, I think, August to September 2010 when we put the bank into wind-down. The ordinary course of business, in extent, changed because, at that point, they were then winding down. This type of transaction was not captured. It became an ordinary course of business and probably should have been captured.

Deputy John Deasy: We are getting to the kernel of the issue, which is commercial freedom-----

Ann Nolan: Yes.

Deputy John Deasy: -----and the kind of oversight that the State provided when it came to something that was owned by the public. As I said to the witnesses earlier, it is ironic that before concluding a banking inquiry into something that happened historically, we have initiated another inquiry into a bank that we did own.

I asked a question about the framework that existed initially. I understand what Ms Nolan is saying, but a lot of people have reached the conclusion that, regardless of the issue of commercial freedom, the State and the Department of Finance did not act accordingly in terms of the oversight of IBRC, and had to change the framework document subsequently. That is really what happened.

Ann Nolan: We changed the framework document when the nature of the relationship changed because the nature of the organisation changed.

Derek Moran: I wish to emphasise that point. The 2009 relationship framework was based on a company that was supposed to return to being a bank. Its normal trade was to be banking. That changed in the latter half of 2010, with a business plan being agreed with the EU in January 2011, after which it went into wind-down.

There was a provision in the original relationship framework that any material acquisition, disposal, investment, realisation or transaction other than in the course of ordinary business would be a reserved function of the Department. When it went into wind-down, such disposals became part of the ordinary business, and fell out. That meant the relationship framework was no longer the right one.

Deputy John Deasy: Fair enough.Derek Moran: They were not required to notify, and they did not.

Deputy John Deasy: The Department had an epiphany. I will read the note issued by the Department, which reads:We are concerned at the number of large transactions that have been poorly executed under the direction of the current CEO.The note refers to June or July 2012. What other transactions did the Department look at? What other large transactions was the Department concerned about in terms of the disposal of assets within IBRC? What else are we looking at here?

Ann Nolan: The list of transactions is in that same document. There is the Allsop transaction.

Deputy John Deasy: Right.

Ann Nolan: There was the engagement of Blackstone on an exceptional basis.

Deputy John Deasy: Is the Department looking at anything else?

Ann Nolan: No, I think that is an exhaustive list. Looking through all our other files we cannot find a reference to any other.Deputy John Deasy: This reference to a number of large transactions-----Ann Nolan: That is all we can find any record of. The individual who wrote that particular note is no longer with the Department and he has no recollection of any others.

Deputy John Deasy: Mr. Moran's predecessor, Mr. John Moran, met the CEO of IBRC. There are no minutes of that meeting. Will Mr. Moran give the committee an idea as to what was expressed on behalf of the Department?

Derek Moran: There are no minutes but there is a record of what happened at the meeting and it was largely a follow-up from the meeting with the Minister a fortnight earlier about improving the relationship and getting better oversight going forward, and that culminated in putting somebody from the Department into IBRC in a specific role.

There is a record, which has been released under FOI, from Michael Torpey recording John Moran's debriefing of that meeting, and that sets it out. Am I right in that?

Ann Nolan: Yes.

Derek Moran: The key was to follow up the items that were discussed with the Minister on 25 July. The main one was to action out the improvement of the oversight and the improvement of the relationships going forward.

Deputy John Deasy: When one looks at the Anglo Irish Bank Corporation Act 2009, it is pretty specific when it comes to the flow of information that should be going from the bank to the Minister and the Department.

It talks about any material acquisitions, disposals, investments, realisations or other transactions other than in the ordinary course of Anglo Irish Bank's banking business. In hindsight, was the Act followed?Ann Nolan: It depends on what one considers as the ordinary course of business and there was a difference of opinion at different times between ourselves and the board of the bank as to what constituted-----

Deputy John Deasy: As far as the interpretation of the Act?

Ann Nolan: The interpretation of the Act.

Deputy John Deasy: And was that made clear at the time?

Ann Nolan: The Deputy can see the documents that we had at that time. One of the other issues that has to be taken into account is the relationship-----

Deputy John Deasy: The suspicion is that it was not made clear. We will get down to the nub of this now. The suspicion is that the Act was enacted and the details within the Act were not followed through on and there was not a sufficient level of communication or inquiry when it came to the Department and the bank.

There is some reasonable evidence to suggest that the details of the Act and the spirit of the Act were not followed through on. Ms Nolan has said that she went back through the files. When it came to full access to information, does Ms Nolan believe now that there was a serious problem? I think the answer is obviously, "Yes," because the whole framework was revised subsequently.Ann Nolan: To go back to the framework, the reason the framework was written the way it was the first time was because that is what was insisted on by DG Comp, the competition authority in Europe.

We had no option but to allow commercial freedom to the bank and to limit our inquiries, and that was insisted on by DG Comp. One of the reasons the second relationship framework took a long time to negotiate was because DG Comp was reluctant to allow us to put in the kind of thresholds that would say certain documents would have to come to us.Deputy John Deasy: Is that the reason the revised framework was not implemented until March 2012?Ann Nolan: That is the reason.

Deputy John Deasy: Is that the only reason?Ann Nolan: In 2010 there were a lot of other things going on in the Department and the bank was reluctant to change it, but the main reason was that in March 2011 there was the recapitalisation of the other banks, the PCAR, and the burning of the bondholders during June and July, and there was a set of things agreed under the programme.

The question of the revised relationship frameworks came up in August when we had the other major bits done and they were discussed then between August 2011 and March 2012 and that is when they were put in place.Derek Moran: It is very easy to forget that this was an exceptional period. We were going into a programme and a general election. All conditionality that went with that programme had to be implemented as a priority for the release of funds.

In addition, the State was locked out of the markets. As Ms Nolan has said, the rewriting of the relationship framework became a condition of the programme after the third review. It was originally to be delivered by the end of December 2011 and it was not delivered until the end of the first quarter.

There was slippage on that. That was a relationship framework negotiated between us, the bank, the three members of the troika, and DG Comp. It was not simple. It was multi-party. To paraphrase what Ms Nolan has said, I think DG Comp wanted us to be even further away and more hands-off in our relationship with the banks rather than closer.

Deputy John Deasy: At a certain point the Department made a determination that Anglo Irish Bank was not forthcoming enough with regard to its decisions and transactions. Mr. Moran has said that the Department then decided to put an official in on the board to keep an eye on things. The board did not like it.

It begs the question whether it should have occurred much earlier. That is the issue. Therefore, we go back to Siteserv and other transactions, and we now have a public inquiry into whether the public achieved what it should have achieved through the sale of that.

The public did not expect the Department to fall down so badly so quickly after what occurred. The requisite scrutiny was not there. The Department changed it, effectively, at a certain point, but I do not believe that it was there. I think the Department fell down.

"The requisite scrutiny was not there... I think the Department fell down."

Ann Nolan: I would absolutely not agree with Deputy Deasy. The independence of the banks was an absolute prerequisite of DG Comp. It remains the issue that the responsibility for the running of the banks is a matter for the boards of the banks and we appointed a board chaired by Alan Dukes, a former Minister for Finance, a very capable man.

I have no evidence, to this day, that any of the transactions were wrong, but I accept that there are many questions about Siteserv. We had questions ourselves about Siteserv. We do not know the outcome of the inquiry. We have set up an inquiry to look not only at that but all of the other deals that that board did.

Deputy John Deasy: Ms Nolan's word choice is interesting - she has no evidence that any transactions were wrong. The Department of Finance would have a very clear opinion with regard to the amounts of money that were recovered from the sale of Siteserv, and the opinion of the Department of Finance was that it was not enough and that the State did not achieve what it should have.

That was, in effect, the opinion within the Department of Finance and that is why things changed. So when Ms Nolan says that there is no evidence of anything that went wrong, there is a clear opinion that came from the Department of Finance that things were not as they should have been.

Ann Nolan: No, I think the opinion within the Department of Finance at the time, and as reflected in those documents, was that there were aspects of that transaction that it was not happy with. There were aspects of it where we felt it was possible that a different set of actions could have brought a better solution.

The board told us and assured us and the Minster that that was not the case, that this was the best possible transaction. We have now asked the special liquidators under Mr. Justice O'Neill to inquire into that and look at all of the facts and establish whether or not they agree with the board.

Certainly, there were aspects of that transaction we were unhappy with. There is a big difference between that and suggesting that everything that that board did was wrong-----

Deputy John Deasy: I am not suggesting everything the board did was wrong.

Ann Nolan: -----or that there was huge-----

Deputy John Deasy: That is very unfair. Did I say-----

Ms Ann Nolan: Deputy Deasy said that the entire position-----Deputy John Deasy: Did I suggest that everything that the board did was wrong?

Ann Nolan: No, what the Deputy suggested was that everything that happened between the-----Deputy John Deasy: No. Do not put words in my mouth.Ann Nolan: I am sorry. I withdraw that completely. I apologise to the Deputy. I was not trying to challenge him in that way.Deputy John Deasy: KPMG and former Justice O'Neill are looking into all transactions that took place over €10 million. We are aware of that. What we are delving into here is how quickly a Department acts when it actually raises concerns itself.

The answer is - not very quickly. Regardless of the regulatory body dealing with this, there was an awful long time between the raising of the initial concerns and the establishment of the revised framework document.

Ann Nolan: I do not understand. The revised document was put in place in April 2012.

Deputy John Deasy: It was March.

Ann Nolan: Sorry, it was March 2012. That was before concerns were raised.

Deputy John Deasy: My point is that concerns were raised within the Department on the operation of the bank, which led to the revised framework document. Is that a fair point?